The Greed Factor

Digital Journal — For most of us, high-tech is still all about the Internet: surfing, email, file-sharing, instant messaging, network gaming or buying stuff from eBay. But that’s only a fraction of its potential. Few of us are aware of the many things that have already been developed but not yet put to use.

Multimedia on demand, distance learning, unlimited teleconferencing, remote surgery, massive computer grids and nanotechnology to treat disease, monitor the environment or produce and store energy — this is not the stuff of science fiction. These applications and technologies are here. They’re just not visible.

Why? In a word: greed.

Over the past few years, the high-tech industry abandoned its focus on innovation and concentrated on maximizing profit. Instead of developing widgets, corporations are cutting back on staff, especially highly trained (and therefore highly paid) workers. Instead of investigating new ways to do things, they’re spending their money on legal talent to protect patents and copyrights because copyright legislation — especially U.S. copyright legislation — encourages them to do so, and because they lose their intellectual property rights if they don’t defend them vigorously.

This refocusing is the direct result of the dot-com crash of 2001. After the sudden collapse of the tech bubble, corporate mandarins felt they could still reach their old financial objectives with dramatically decreased resources. Out went the profligate visionaries, in came the responsible managers; out went the wacky designers, in came grey-faced functionaries who could keep a project under budget.

We’ve survived the 2001 crash, but we’re not out of the woods yet, economically or mentally. Most of us acknowledge that the digital boom of the late 1990s was an economic bubble driven by money-hungry investors. But after 2001, it became an article of faith that the avarice of those days was washed away with the $3-trillion drain on the NASDAQ, the flushing out of 500 dot-coms and the evaporation of a half-million tech jobs.

But the greed hasn’t gone away. It’s still here — it’s just not as overt as before.

As a technology journalist, I see this point driven home as I sift through each day’s press releases. I’m usually looking for new product announcements, but I get snowed under by a mountain of quarterly earnings statements and financial placements. All sound oddly similar, and that’s because they’re written with only one reader in mind: the shareholder. Even private companies use that same tone, as though they were talking to invisible investors.

My eyes glaze over as I read that “Company X, the world leader in business intelligence, and Company Y, a recognized leader in process improvement, have announced they have formed a major strategic partnership to provide complementary software and services to assist organizations in improving their software development lifecycle processes, and to attain higher levels of efficiency.”

These announcements are important to management and shareholders, and also to investment reporters (who write for shareholders in the first place). But that’s just the point: Why do financial statements dominate what companies seek to tell the world?

I’ve long thought this stemmed from a desire to reduce the work needed to produce announcements, using boilerplate language to cover all eventualities.

Now I think differently. These statements actually reflect the priorities of the companies issuing them. The carpeted executive suites of most tech companies have become so investor-obsessed that they bury announcements of neat new stuff under a ton of words designed to impress those who play the market. Eventually, that product can be sold to investors as “a further demonstration of our commitment to leveraging our expertise in. . .” Never mind. You get the idea.

The cumulative effect is to emphasize the pre-eminence of the investment community to the life and direction of a tech company, and its desire to return to the economic bubble of the 1990s. Investors — and the executives increasingly acting as their servants — actually yearn for the good old days. They miss the adrenaline rush of overvalued stocks and sizzling IPOs. They miss selling fancy new technologies to market dabblers who can’t begin to understand what it is they’re funding. The tone of these official statements suggests that the unreal expectations of the ‘90s tech boom were actually a good thing.

When Google announced it would go public in early 2004, it stirred hopes that the giant could singlehandedly re-light the sputtering IPO fuse. But the excitement quickly muted when Google said it would conduct the IPO as a Dutch auction, allowing a greater number of smaller investors in on the ground floor. Investment brokers condemned the decision, mostly because they would lose the profits that come with exclusivity. Although Google’s shares were being sold by a number of companies, many of them put ferocious obstacles in place to discourage smaller investors. That way, they could behave much like they did in the boom days, when stocks could be sold to a select few who could be trusted to immediately flip them for fabulous returns.

Some great technology came out of that era, of course, and some innovators made incredible amounts of money for themselves and their investors. But in the wake of the dot-com bust, investors are impatient to get the bubble-ball bouncing again. The technology magazine Red Herring, which suspended publication for a while because of a lack of ad revenue, headlined the first issue of its reincarnation on Nov. 15 with a story about “upstart VC [venture capitalist] firms in the U.S. who are getting money from limited partners who see the old-line VCs as too cautious and bureaucratic.”

And who are those “old-time” venture capitalists? Why, the ones who became fiscally cautious after the 2001 bust. In short, venture capitalists are attempting to reinvent themselves as a bunch of financial cowboys looking for new bull markets to ride.

The desire to overheat the climate is everywhere. A recent news story from The Associated Press examined several 2004 high-tech IPOs and concluded that the market has “entered the second coming of the Internet Age.”

The pressure placed on the market to perform leaves little time for the innovative community to properly fashion its ideas. Engineers and software developers no longer enjoy the luxury of dreaming of a digital revolution in their parents’ garages, as Apple’s Steve Wozniak and Steve Jobs once did. There’s no time for that now, because a company that doesn’t move quickly sees its investors depart en masse for portfolios promising faster returns.

The impatience of the profit motive was made clear by a woman I know who had been employed as a strategic planning officer with a rising tech star. One day she announced she had left her job and would not work in the same sector again, no matter how well it paid.

Why? Because she was tired of an atmosphere where “strategic planning” had come to mean tangible results for shareholders within two fiscal quarters. Like other corporate strategists, she had been trained to think in five-year cycles. Truncating the time between product conceptualization and seeing a return on investment from 20 quarters to two was more than she could possibly handle. When she protested, she was abruptly told that two quarters was “the new reality.”

I also heard the words “new reality” in a conversation with a newspaper publisher who was describing the old days, when publishers satisfied themselves with annual profits that ran between three and five per cent. But as large conglomerates began buying up newspapers, publishers found themselves trying to meet demands for annual profits in the 25 per cent range, with steady yearly increases expected after that. Even record profits are now deemed “profit disappointments” if they’re below projected targets.

And where were the increases in profits to come from? Initially, from trimming staff and features and later, from installing new technologies which promised increased revenue through efficiency. That, sighed the beleagured publisher, was “the new reality.”

Annual profits of 25 per cent don’t seem unrealistic to managers in the Brave New Reality, especially to those who’ve never sailed a company through the treacherous shoals of a prolonged recession. Recently, the investment community expressed disappointment at the Conference Board of Canada’s prediction that profits in the tech and telecom industries for 2004 would be only $4 billion, a 33 per cent increase over 2003. In the heyday of the late ‘90s, the Board noted, annual profits in Canada’s tech sector exceeded $5 billion.

Interestingly, a study conducted by the Public Health Agency of Canada found that heavy workloads — due to downsizing, long hours and unrealistic demands — are actually costing the economy more money.

In fact, health-related costs from “high role overload” amount to $6 billion a year, the report said, and medical treatment for employees suffering from “high caregiver strain,” resulting from balancing demands of home and office, cost an additional $5 billion annually.

The study examined all industries, not just the tech sector. And it concluded that “unrealistic demands” are costing industry more than the entire tech sector made in 1999, its most profitable year.

“Canadians are subsidizing, through their tax dollars and financial support of the health-care system, organizational practices such as ‘doing more with less,’ downsizing, basing promotions on hours at work, setting unrealistic work expectations [and] managing by crisis,” the report said.

The question then becomes, who made this state of affairs the new reality — the investors or the managers? Most likely it was a folie à deux, a phrase the French use to describe a mutual madness.

Recently, the Federation of Independent Business issued a report that said Canada needs “more graduates with world-class information-age skills if [businesses hope] to remain competitive in the information and communications technology sector.” The report went on to say that 200,000 small- and medium-sized businesses could not find employees to meet their tech demands; last year, there were only 4,500 “new graduates” available to fill 60,000 potential IT jobs.

It was a disingenuous statement. “New graduates” is a euphemism for cheap labour — nowhere did the study suggest that those 60,000 jobs were entry-level ones. The federation’s concern was putting fresh graduates into all those jobs, whether or not those jobs require extensive experience atop a freshly minted IT degree.

While larger tech companies try to squeeze more productivity from their staff, they are looking to hire more kids, not professionals, in the name of responsible corporate stewardship. But by the time the kids get trained, they start demanding higher salaries, at which point the industry issues another alarmed call for “new graduates.”

A couple of sociological reports have recently raised the red flag that the average IT worker in the developed world has reached 45 years old, a phenomenon they like to call “aging.”

It’s difficult to conceive how efficiency can be gained when companies think of IT staff as eternally young and “aging” by 45. Sociologists may use 45 as a convenient place to measure the mid-point of a career path, but tech companies interpret them as a call to replace aging IT professionals with newer, cheaper labour.

The Conference Board of Canada showed how management techniques have replaced innovation as the benchmark of success in its ninth annual report, “How Can Canada Prosper in Tomorrow’s World?” The study claimed that Canada’s income gap with the U.S. was $6,078 per capita in 2003, almost entirely due to lower productivity values in Canada. On average, it said labour productivity here was about 83 per cent of the 2001 level in the U.S. Of seven major industries, Canadians lagged behind their American counterparts in five — including computers and electronic products, where industry productivity was only at 46 per cent of the U.S. in 2002.

Few industries will ever question the study’s accuracy; they will likely accept that everything is about productivity, and attempt to level the playing field by making companies run more efficiently.

But is that enough? Can one dictate how efficient a high-tech company must be? Does the development of a new Internet technology, for instance, follow precisely the productivity arc demonstrated in forestry, automobile manufacturing and mineral extraction?

Ultimately, the issue boils down to this: Can technological innovation thrive in an era when corporations are increasingly looking to improve profit margins by constantly tightening departmental budgets?

The answer seems to be self-evident.